Exhibit 10.10**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
Third Amendment to Note Purchase Agreements
This Third Amendment, dated as of July 28, 2003, to the separate Note
Purchase Agreements, each dated as of April 30, 2001, is by and among Flow
International Corporation, a Washington corporation (the "Company"), Xxxx
Xxxxxxx Life Insurance Company, Xxxx Xxxxxxx Variable Life Insurance Company,
Signature 4 Limited and Signature 5 L.P. (collectively, the "Noteholders").
Capitalized terms used herein without definition shall have the meanings set
forth in the Note Purchase Agreements referred to below (including as amended
hereby).
Recitals:
A. The Company and the Noteholders have heretofore entered into the
separate Note Purchase Agreements, each dated as of April 30, 2001, as amended
by the First Amendment to Note Purchase Agreements dated as of December 14, 2001
and the Second Amendment to Note Purchase Agreements (the "Second Amendment")
dated as of September 16, 2002 (as amended, the "Note Purchase Agreements"),
under and pursuant to which there are outstanding (a) the Company's 13% Senior
Subordinated Notes, due April 30, 2008, in the aggregate principal amount of
$35,000,000 (the "Notes") and (b) certain Warrants to purchase common stock of
the Company (the "Warrants"). Pursuant to the terms of the Second Amendment, the
Notes currently bear interest at the rate of 15% per annum, and the Default Rate
applicable to overdue payments in respect of the Notes is 17% per annum.
B. The Company has advised the Noteholders that Events of Default have
occurred and are continuing under (a) Section 12(c) of the Note Purchase
Agreements as a result of the Company's failure to comply with the terms of
Sections 9.6 through 9.9 of the Note Purchase Agreements and (b) Section 12(b)
of the Note Purchase Agreements as a result of the Company's failure to make the
scheduled semi-annual interest payment under the Notes due on April 30, 2003
(the "Existing Defaults").
C. The Company and the Noteholders now desire to amend the Note Purchase
Agreements and the Notes in the respects, but only in the respects, hereinafter
set forth.
Now, THEREFORE, the Company and the Noteholders, for good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, do
hereby agree as follows:
Section 1. Amendments.
Section 1.1. Quarterly and Annual Financial Statements. Section 7.1(a) and
Section 7.1(b) of the Note Purchase Agreements shall be amended and restated in
their entirety to read as follows:
"(a) Quarterly Statements -- within 45 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of:
(i) a consolidated and consolidating balance sheet of the
Company and its Subsidiaries as at the end of such quarter, and
(ii) consolidated and consolidating statements of income and
consolidated changes in shareholders' equity and cash flows of
the Company and its Subsidiaries for such quarter and (in the
case of the second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-Q
prepared in compliance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
(b) Annual Statements -- within 90 days after the end of each
fiscal year of the Company, duplicate copies of:
(i) a consolidated and consolidating balance sheet of the
Company and its Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income and
consolidated changes in shareholders' equity and cash flows of
the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion (x) shall state that such financial statements present fairly,
in all material respects, the financial position of the companies
being reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, (y) shall state that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable basis
for such opinion in the circumstances, and (z) shall not be qualified
by reason of restricted or limited examination of any material portion
of the records of the Company or any Subsidiary and shall contain no
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disclaimer of opinion or adverse opinion except such as the Required
Holders in their sole discretion determine to be immaterial, provided
that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together
with the Company's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission, together with the accountant's certificate
described in clause (B) above, shall be deemed to satisfy the
requirements of this Section 7.1(b);"
Section 1.2. Monthly Statements. Section 7.1 of the Note Purchase
Agreements shall be further amended by deleting the "." at the end of paragraph
(i) and by inserting in lieu thereof ";" and by adding after paragraph (i) new
paragraphs (j) and (k) to read as follows:
"(j) Monthly Statements -- as soon as available and in any event
within 15 days after the end of each calendar month, monthly updates
of (i) consolidated revenues (excluding percentage of completion
revenues which are calculated only at quarter-end), (ii) consolidated
gross margins and operating income (excluding revenues and expenses
associated with percentage of completion sales which are calculated
only at quarter-end), (iii) consolidated domestic and consolidated
foreign balances for, in each case, cash accounts receivable,
inventory and accounts payable (excluding unbilled revenues which are
calculated only at quarter-end), (iv) summary of domestic consolidated
customer deposits and other prepayments, (v) 13-week rolling cash flow
forecast and (vi) month-end cash balances; and
(k) Annual Financial Projections -- as soon as available, but not
later than thirty (30) days before the beginning of each fiscal year,
a copy of the Company's annual financial projections."
Section 1.3. Financial Covenants. Sections 9.6 through 9.9 of the Note
Purchase Agreements shall be deleted in their entirety and replaced with the
following:
"Section 9.6. EBITDA. As of the end of each period indicated
below, the Company shall maintain, on a consolidated and domestic
(U.S.) basis, an EBITDA of at least (or in the case of (losses), not
to exceed) the amount set opposite such period, except as otherwise
provided in the Restructure Agreement:
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(a) Quarterly Basis.
For fiscal quarter
ending: Consolidated Domestic
------------------- ------------ ------------
July 31, 2003 ($4,728,000) ($4,073,000)
October 31, 2003 ($901,000) ($1,052,000)
January 31, 2004 $ 963,000 ($864,000)
April 30, 2004 $ 3,484,000 $ 61,000
July 31, 2004 $ 784,000 $ 61,000
Each fiscal quarter $ 784,000 $ 61,000
thereafter
(b) Cumulative Basis.
Period from
May 1, 2003 to: Consolidated Domestic
--------------------- ------------ -----------
July 31, 2003 ($4,728,000) ($4,073,000)
October 31, 2003 ($5,630,000) ($5,125,000)
January 31, 2004 ($3,166,000) ($4,489,000)
April 30, 2004 $ 2,317,000 ($2,428,000)
July 31, 2004 $ 5,101,000 ($367,000)
Each period of four $ 5,101,000 ($367,000)
fiscal quarters ended
thereafter
Section 9.7. Minimum Collateral Requirements. As of each date
indicated below, the Company shall maintain domestic (U.S.) accounts
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receivable and inventory which value equals the amount set opposite
such date, except as otherwise provided in the Restructure Agreement:
Measurement Date
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July 31, 2003 $31,400,000
October 31, 2003 $35,200,000
January 31, 2004 $29,200,000
March 31, 2004 $24,900,000
April 30, 2004 and as the last day of $24,800,000
every month thereafter
Section 9.8. Financial Restructuring. On or before the following
dates, the Company shall deliver the following to the Noteholders:
(a) September 30, 2003: a certified copy of the resolution or
unanimous consent of the Company's board of directors detailing the
Company's refinancing or restructuring strategy for the obligations
outstanding under the Senior Credit Agreement, the Notes and the other
Note Documents;
(b) October 31, 2003: list of qualified financial institutions
chosen by the Company for such refinancing or restructuring; and
(c) November 30, 2003: memorandum concerning the Company's long
term business plan and proposed terms for such refinancing or
restructuring.
Section 9.9. Additional Goals. The Company will take all
reasonable efforts to achieve the following goals towards implementing
monthly financial reporting on or before the following dates:
(a) August 31, 2003: hire a Chief Financial Officer for the
Company;
(b) September 30, 2003: convert Flow Japan Corporation to X.X.
Xxxxxxx Financial System;
(c) August 1, 2003: initiate the conversion of Flow Robotics to
X.X. Xxxxxxx Financial System;
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(d) November 30, 2003: complete the conversion of Flow Robotics
to X.X. Xxxxxxx Financial System;
(e) February 28, 2004: convert FAC to X.X. Xxxxxxx Financial
System;
(f) February 28, 2004: adopt a uniform chart of accounts across
all Subsidiaries;
(g) March 31, 2004: execute monthly close on X.X. Xxxxxxx
Financial System for all Subsidiaries except for CIS Acquisition Corp.
and Flow South America;
(h) March 31, 2004: within 15 days of month's end, provide the
Noteholders with consolidated and consolidating monthly financial
reports for the Company and all Subsidiaries, including EBITDA
calculations on a monthly basis going forward; and
(i) April 30, 2004: execute quarterly close on X.X. Xxxxxxx
Financial System for all Subsidiaries except for CIS Acquisition Corp.
and Flow South America."
Section 1.4. Additional Affirmative Covenants. New Sections 9.13 and 9.14
are hereby added to the Note Purchase Agreements to read as follows:
"Section 9.13. Additional Guaranties and Collateral. On or before
September 30, 2003, the Company shall deliver the following to the
Noteholders:
(a) the Noteholders shall have received evidence of the
Noteholders' perfected second priority lien in all of FAC, FEMG and
FEG's assets as listed on Schedule 9.13, or in such portion of such
property as shall correspond to the first priority lien being
substantially concurrently granted to the Senior Lenders;
(b) the Noteholders shall have received evidence that notices of
the Noteholders' security interest in all registered patents and
trademarks and applications for patents and trademarks that the
Noteholders have taken a security interest in of the Company, FAC,
FEMG and FEG shall have been filed with the applicable Governmental
Authority;
(c) the Noteholders shall have received such other evidence as
they may deem necessary or appropriate that all documents executed
and/or delivered and all actions taken
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pursuant to clauses (a) and (b) above have been duly authorized and
are legally effective, binding and enforceable;
(d) the Noteholders shall have received (i) a second priority
deed of trust granting the Noteholders a security interest in the
Company's leasehold interest on property located at 00000 - 00xx
Xxxxxx Xxxxx, Xxxx, Xxxxxxxxxx, and (ii) a landlord consent to such
deed of trust, each in form acceptable to the Noteholders; and
(e) the Company and the Guarantors shall have provided such
additional information concerning their real and personal property and
assets as the Noteholders may request, including a certification by a
Senior Officer of the Company of all guaranties and collateral granted
to the Senior Lenders and true, correct and complete copies of all
documentation relating thereto.
Section 9.14. Certain Payments. (a) On or before July 29, 2003,
the Noteholders shall have received such evidence as they shall
require in order to confirm initiation of the payments made by the
Company to the Noteholders aggregating not less than $1,000,000. On or
before August 1, 2003, the Noteholders shall have received such
evidence as they shall require in order to confirm receipt of such
payments. Such payments shall be applied by the Noteholders to the
interest payment due in respect of the Notes on April 30, 2003.
(b) On August 2, 2004, the Company shall pay in cash to the
Noteholders an aggregate amount equal to (i) $2,000,000, less (ii)
payments, if any (excluding the payments referred to in Section
9.14(a)), made by the Company to the Noteholders on or after the Third
Amendment Effective Date, it being understood that payments described
in this subclause (ii) are subject to Section 7.15 of the Senior
Credit Agreement as in effect on the Third Amendment Effective Date.
Section 9.15. Additional Financial Covenants. On and after August
2, 2004:
(a) As of the end of each fiscal quarter ending after August 2,
2004, the Company shall maintain, on a consolidated basis, a Fixed
Charge Coverage Ratio of at least 1.25 to 1. 'Fixed Charge Coverage
Ratio' shall mean the quotient obtained by dividing (i) the sum of
Cash Flow for the period of four consecutive fiscal quarters then
ended by (ii) the sum of Fixed Charges payable in such period. 'Cash
Flow' shall mean the Company's net income after taxes, plus interest
expense, depreciation and amortization, less the aggregate amount of
any
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dividend issued. 'Fixed Charges' shall mean the Company's interest
expense, plus any portion of the Company's long-term debt which will
be due within 12 months from the date of determination.
(b) As of the end of each fiscal quarter ending after August 2,
2004, the Company shall maintain, on a consolidated basis, a Funded
Debt Ratio of not more than 5.00 to 1. 'Funded Debt Ratio' shall mean
as of the end of any fiscal quarter, the quotient obtained by dividing
(a) Funded Debt as of the end of such fiscal quarter by (b) the EBITDA
for such quarter and the three immediately preceding fiscal quarters,
plus, in the event that the Company has acquired any Subsidiaries
during such fiscal quarter or during the immediately preceding three
fiscal quarters, the EBITDA of such Subsidiaries from the first day of
the immediately preceding three fiscal quarters through the date of
acquisition of each Subsidiary.
(c) As of the end of each fiscal quarter ending after August 2,
2004, the Company shall maintain, on a consolidated basis, a Senior
Funded Debt Ratio of not more 3.50 to 1. As used herein, 'Senior
Funded Debt Ratio' shall mean, as of the end of any fiscal quarter,
the quotient obtained by dividing (A) Senior Funded Debt as of the end
of such fiscal quarter by (B) the EBITDA for such quarter and the
three immediately preceding fiscal quarters, plus, in the event that
the Company has acquired any Subsidiaries during such fiscal quarter
or during the immediately preceding three fiscal quarters, the EBITDA
of such Subsidiaries from the first day of the immediately preceding
three fiscal quarters through the date of acquisition of each
Subsidiary."
Section 1.5. Negative Covenants. Sections 10.1 through 10.8 are hereby
amended and restated in their entirety to read as follows:
"Section 10.1. Transactions With Affiliates. The Company will not
and will not permit any Subsidiary to enter into directly or
indirectly any transaction (including without limitation the purchase,
lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another
Subsidiary), except in the ordinary course and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate. Notwithstanding the
foregoing, the Company shall not, nor shall it allow any Subsidiary
to, directly or indirectly, to transfer cash to the Company or any
Affiliate, except (a) the sale of inventory in the ordinary
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course of business in accordance with the Company's existing
intercompany transactions and transfer pricing policy in effect on
July 28, 2003, (b) cash transfers from Foreign Subsidiaries to the
Company for the sole and immediate purpose of satisfying the Company's
obligations under the Senior Credit Agreement, evidenced by promissory
notes at fair market value, (c) payments by the Company to such
Foreign Subsidiary in accordance with the terms of the promissory
notes referred to in subclause (b) and (d) dividends from Foreign
Subsidiaries to the Company in connection with (x) the payment to the
Senior Lenders referred to in Section 2.4 of the Senior Credit
Agreement as in effect on the Third Amendment Effective Date and (y)
the payment to the Noteholders pursuant to Section 9.14.
Section 10.2. Dividends, Purchase of Stock, Etc. The Company
shall not, and shall cause each Subsidiary to not, (a) declare or pay
any dividend (except dividends payable in capital stock) on any shares
of any class of its capital stock or (b) apply any assets to the
redemption or other retirement of, or set aside any sum for the
payment of any dividends on or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of capital
or otherwise in respect of, shares of any class of capital stock of
the Company; provided, however, Flow Autoclave Corporation, which is
50% owned by the Company, is excluded from this restriction until the
date on which the Company owns more than 50% of such company, and
provided, further, dividends from Foreign Subsidiaries to the Company
in connection with (x) the payment to the Senior Lenders referred to
in Section 2.4 of the Senior Credit Agreement as in effect on the
Third Amendment Effective Date and (y) the payment to the Noteholders
pursuant to Section 9.14 are hereby excluded from this restriction.
Section 10.3. Liquidation, Merger, Sale of Assets. (a) Neither
the Company nor any Subsidiary shall liquidate, dissolve or enter into
any consolidation, joint venture, partnership or other combination or
sell, lease, or dispose of (including transfers to any Subsidiary that
has not executed a guaranty and security agreement pursuant to
Sections 9.10 and 9.11(c) or is not a Foreign Guarantor) all or any
substantial portion of its business or assets or of any Collateral
(excepting sales of goods in the ordinary course of business).
Notwithstanding the foregoing, the Company may proceed with the
Restructure Event pursuant to the Restructure Agreement. Neither the
Company nor any Guarantor shall merge with any other Person.
(b) The Company will not sell, transfer or otherwise dispose of
any Subsidiary Stock of a Subsidiary (except to qualify directors) or
any Indebtedness of any Subsidiary, and will not permit any Subsidiary
to sell, transfer or otherwise dispose of any Subsidiary Stock or
Indebtedness of
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any Subsidiary (other than to the Company or a Wholly-owned
Subsidiary).
(c) The Company will not permit any Subsidiary to issue any
Subsidiary Stock to any Person other than the Company or a
Wholly-owned Subsidiary except (i) to qualify directors or (ii) in
connection with an issuance of Subsidiary Stock whereby the Company or
such Subsidiary maintains its same proportionate interest in such
Subsidiary.
Section 10.4. Indebtedness and Senior Debt. (a) Neither the
Company nor any Subsidiary shall create, incur or become liable for
any Indebtedness except:
(i) Indebtedness incurred under this Agreement, the Other
Agreements, the Notes and the Subsidiary Guaranty;
(ii) Indebtedness existing on the date of Closing as
described in Schedule 5.15;
(iii) Senior Debt incurred pursuant to the Senior Credit
Agreement after the Third Amendment Effective Date (including
Guaranties of Subsidiaries delivered in connection therewith from
time to time); provided that, at the time such Senior Debt is
incurred and after giving effect thereto ad to the application of
the proceeds thereof, no Default or Event of Default shall exist;
(iv) current accounts payable or accrued or other current
liabilities incurred by the Company or a Subsidiary in the
ordinary course of business;
(v) Indebtedness for the deferred purchase price, or for
obligations under leases, of real and personal property used by
the Company or a Subsidiary in its business (excluding financing
or synthetic leases);
(vi) Subordinated Debt of the Company;
(vii) Indebtedness of the Company owing to Foreign
Subsidiaries arising from intercompany loans made by such Foreign
Subsidiaries to the Company for the sole and immediate purpose of
making payments to the Senior Lenders under the Senior Credit
Agreement.
(b) In addition to the requirements of Section 10.4(a), the
Company shall not at any time permit the aggregate amount of Senior
Debt outstanding under the Senior Credit Agreement to exceed
$68,000,000
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(reduced, dollar for dollar, by permanent reductions in the
commitments thereunder).
Section 10.5. Guaranties. Except for (a) the guaranties set forth
on Schedule 10.5 hereto and (b) guaranties given in favor of the
Noteholders pursuant to this Agreement and the Other Agreements, and
(c) guaranties given in favor of the Senior Lenders pursuant to the
Senior Credit Agreement, neither the Company nor any Subsidiary shall
assume, guaranty, endorse or otherwise become directly or contingently
liable for, or obligated to purchase, pay or provide funds for payment
of, any obligation or Indebtedness of any other person, other than by
endorsement of negotiable instruments for deposit or collection or by
similar transactions in the ordinary course of business.
Section 10.6. Liens. Neither the Company nor any Subsidiary shall
create, assume or suffer to exist any Lien except (a) Liens granted by
the Company and its Subsidiaries securing Indebtedness outstanding
under the Senior Credit Agreement and this Agreement and the Other
Agreements and (b) Liens described on Schedule 10.6 hereto.
Section 10.7. Investments. The Company shall not make any loan or
advance to any person or purchase or otherwise acquire the capital
stock, assets or obligations of, or any interest in, any person,
except (a) commercial bank time deposits maturing within one year, (b)
marketable general obligations of the United States or a State or
marketable obligations fully guaranteed by the United States, or (c)
short-term commercial paper with the highest rating of a generally
recognized rating service.
Section 10.8. Operations. The Company shall not engage in any
activity which is substantially different from or unrelated to the
business activities or products of the Company on July 15, 2003."
Section 1.6. Capital Expenditures. Section 10.12 to the Note Purchase
Agreements is hereby amended and restated in its entirety to read as follows:
"Section 10.12. Capital Expenditures. The Company shall not, nor
shall it allow any Domestic Subsidiary to, make or become legally
obligated to make any expenditure in respect of the purchase or other
acquisition of any fixed or capital asset (excluding normal
replacements and maintenance which are properly charged to current
operations), except for capital expenditures in the ordinary course of
business not exceeding, in the aggregate for the Company during each
time period set forth below, the amount set forth opposite such time
period:
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May 1, 2003 - April 30, 2004 $6,700,000
May 1, 2004 - August 1, 2004 $ 800,000"
Section 1.7. Additional Negative Covenants. New Sections 10.14 and 10.15,
are hereby added to the Note Purchase Agreements to read as follows:
"Section 10.14. New Product Development Expenditures. The Company
shall not, nor shall it allow any Subsidiary to, fund or become
legally obligated to fund any new product development costs, including
without limitation, research, development and engineering costs, as
indicated in financial statements provided pursuant to Section 7.1,
not exceeding, in the aggregate for the Company during each time
period set forth below, the amount set forth opposite such time
period:
May 1, 2003 - April 30, 2004 $10,700,000
May 1, 2004 - August 1, 2004 $ 2,700,000
Section 10.15. Burdensome Agreements. The Company shall not, nor
shall it permit any Subsidiary to, directly or indirectly, enter into
any Contractual Obligation (other than this Agreement, the Other
Agreements or the Senior Credit Agreement) (a) that limits the ability
of (i) any Subsidiary to make Restricted Payments to the Company or
any Guarantor or to otherwise transfer property to the Company or any
Guarantor, (ii) of any Subsidiary to guarantee the Indebtedness of the
Company or (iii) of the Company or any Subsidiary to create, incur,
assume or suffer to exist Liens on the property of such Person; or (b)
that requires the grant of a Lien to secure the obligations of such
Person if a Lien is granted to secure another obligation of such
Person."
Section 1.8. Events of Default. Section 12 of the Note Purchase Agreements
is hereby amended as follows:
(a) paragraph (c) of Section 12 shall be amended in its entirety to
read as follows:
"(c) the Company defaults in the performance of or compliance
with any term contained in Sections 9.5 through 9.11, inclusive,
Section 9.14, Section 9.15, Sections 10.1 through 10.10, inclusive, or
Sections 10.12 through 10.14, inclusive; or"
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(b) paragraph (f) of Section 12 shall be amended in its entirety to
read as follows:
"(f) any Subsidiary Guaranty or any Security Document shall cease
to be in full force and effect for any reason whatsoever, including,
without limitation, a determination by a Governmental Authority of
competent jurisdiction that any such agreement is invalid, void or
unenforceable or the perfected security interests created pursuant to
any Security Document is not legal, valid and binding, or the Company
or any Subsidiary shall contest or deny in writing the validity or
enforceability of any of its obligations under any Security Document
or any Subsidiary Guaranty, as applicable; or"
Section 1.9. Definitions. Schedule B to the Note Purchase Agreements is
hereby amended by adding thereto the following new definitions in the
appropriate alphabetical order:
" 'Alternate Restructure Event' has the meaning given to it the
Restructure Agreement.
'CIS Acquisition Corp' shall mean CIS Acquisition Corp. a Michigan
corporation.
'Contractual Obligation' means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
'EBITDA' means pre-tax net income (or pre-tax net loss), plus the sum
of (i) interest expense, (ii) depreciation expense, (iii) depletion
expense, (iv) amortization expense, (v) restructuring expenses, not to
exceed $8,900,000 in the aggregate for all periods of determination, (vi)
fees paid to the Agent and the Senior Lenders pursuant to, and not to
exceed the fees described in, Section 2.9 of the Senior Credit Agreement as
in effect on July 28, 2003, (vii) one-time, non-cash charges related to
write-downs of intangibles or goodwill, and (vii) costs and write-downs
associated with the Restructure Event or Alternate Restructure Event as
defined in Exhibit A to the Third Amendment to Note Purchase Agreements;
provided, however, any add-backs made pursuant to this definition of
'EBITDA' may only be made to the extent that such add-back has already been
deducted in the determination of pre-tax net income for such period.
'FAC' means Flow Asia Corporation, a corporation formed under the laws
of Taiwan.
'FEG' means Flow Europe GmbH, a corporation formed under the laws of
Germany.
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'FEMG' means Flow Europe Manufacturing CoKg, a corporation formed
under the laws of Germany.
'Flow Robotics' means Flow Robotic Systems, a division of the Company
based in Wixom, Michigan.
'Flow South America' shall mean Flow Latino, a corporation organized
under the laws of Brazil and any division of the Company or any Subsidiary
that reports through Flow South America.
'Foreign Guarantors' means FAC, FEG, or FEMG and any other Subsidiary
that from time to time executes and delivers a supplement in the form
attached to, or otherwise becomes bound by, the Foreign Guaranty, and
'Foreign Guarantor' means any one of them.
'Foreign Guaranty' means that certain Guaranty Agreement dated as of
the date hereof, executed by the Foreign Guarantors in favor of the
Noteholders, and any additions, supplements, renewals or amendments
thereto.
'Foreign Subsidiary' means a Subsidiary of the Company other than a
Domestic Subsidiary.
'Guarantors' means the Domestic Guarantors, the Foreign Guarantors,
and any other Subsidiary that from time to time executes and delivers a
supplement in the form attached to, or otherwise becomes bound by, the
Domestic Guaranty or Foreign Guaranty, and 'Guarantor' means any one of
them.
'XX Xxxxxxx Financial System' means the Company's domestic accounting
system or a similar accounting system that is compatible with the domestic
system.
'Restricted Payment' means any dividend or other distribution (whether
in cash, securities or other property) with respect to any capital stock or
other equity interest of the Company or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund
or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such capital stock or other
equity interest or of any option (other than options under the Company's
stock option plan), warrant or other right to acquire any such capital
stock or other equity interest.
'Restructure Agreement' means that certain Restructure Agreement
attached as Exhibit A to the Third Amendment to Note Purchase Agreements.
'Restructure Event' has the meaning given to it the Restructure
Agreement.
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'Senior Credit Agreement' means that certain Second Amended and
Restated Credit Agreement dated as of July 28, 2003 among the Company and
Bank of America, N.A., as Agent and Lender, U.S. Bank National Association
and Keybank National Association, as the same may be amended, modified or
supplemented in accordance with the terms hereof.
'Third Amendment Effective Date' means the date on which the Third
Amendment to Note Purchase Agreements became effective.
'Third Amendment to Note Purchase Agreements' means the Third
Amendment to Note Purchase Agreements dated as of July 28, 2003 between the
Company and each of the Noteholders."
Section 1.10. Additional Schedule. A new Schedule 9.13 to the Note Purchase
Agreements is hereby added in the form of Exhibit B hereto.
Section 2. Agreements Regarding Interest.
(a) Agreement Regarding Interest Rate Increase. Pursuant to the Second
Amendment to Note Purchase Agreements dated as of September 16, 2002, the
interest rate payable in respect of the Notes was increased to 15% per annum and
the Default Rate applicable to overdue payments in respect of the Notes was
increased to 17% per annum, in each case, beginning July 29, 2002 and continuing
until such time as the Company shall have achieved a Fixed Charge Coverage of at
least 1.25 to 1, a Funded Debt Ratio equal to or below 5.00 to 1 and a Senior
Funded Debt Ratio equal to or below 3.50 to 1. The Company and the Noteholders
agree that such increased rates shall remain applicable on the terms more
specifically described in said Second Amendment, notwithstanding the amendments
to Sections 9.6, 9.7 and 9.8 of the Note Purchase Agreements.
Notwithstanding the foregoing, in consideration of the partial interest
payment made by the Company on July 28, 2003, the Noteholders hereby waive the
application of the Default Rate to the interest payment due on April 30, 2003.
(b) Agreement Regarding Interest Capitalization. Notwithstanding any
provision in the Note Purchase Agreements or the Notes to the contrary, the
Noteholders agree that the portion of the semi-annual interest payment due on
April 30, 2003 which remains unpaid on the date hereof shall be capitalized on
the effective date of this Third Amendment. Accordingly, the principal amount of
each Note shall be increased by an amount which corresponds to the proportionate
principal amount of such Note relative to the aggregate principal amount of all
Notes. In addition, unless the Notes are paid in full prior to the relevant
payment dates, the Noteholders agree to capitalize the semi-annual interest
payments due on October 31, 2003 and April 30, 2004, provided that no Default or
Event of Default shall then exist. Such capitalization of interest shall occur
on the date each such interest payment is due, and the principal amount of each
Note shall be increased by an amount which corresponds to the proportionate
principal amount of such Note relative to the aggregate principal amount of all
Notes.
-15-
(c) Resumption of Current Pay Interest. Upon the earlier of (i) the
scheduled semi-annual interest payment due on October 31, 2004 or (ii) the
occurrence of a Default or Event of Default, the Company shall pay all interest
then and thereafter becoming due on the Notes in cash on the respective dates
such interest is scheduled to be paid.
(d) Allonges. In order to reflect the provisions of this Section 2, the
Company shall execute and deliver on the effective date of this Third Amendment
an allonge to each outstanding Note in the form of Exhibit C hereto (each, an
"Allonge") reflecting the foregoing agreements.
Section 3. Representations and Warranties of the Company.
To induce the Noteholders to execute and deliver this Third Amendment, the
Company represents and warrants to the Noteholders (which representations and
warranties shall survive the execution and delivery of this Third Amendment)
that:
(a) this Third Amendment and each Allonge referred to in Section 2(b)
hereof has been duly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding obligation, contract and agreement
of the Company enforceable against it in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally;
(b) the execution, delivery and performance by the Company of this
Third Amendment and each Allonge (i) does not require the consent or
approval of any governmental or regulatory body or agency, and (ii) will
not (A) violate (1) any provision of law, statute, rule or regulation or
its certificate of incorporation or bylaws, (2) any order of any court or
any rule, regulation or order of any other agency or government binding
upon it, or (3) any provision of any material indenture, agreement or other
instrument to which it is a party or by which its properties or assets are
or may be bound, or (B) result in a breach or constitute (alone or with due
notice or lapse of time or both) a default under any indenture, agreement
or other instrument referred to in clause (ii)(A)(3) of this clause (b);
(c) as of the date hereof and after giving effect to this Third
Amendment, no Default or Event of Default has occurred which is continuing;
(d) attached hereto as Exhibit D is a true, correct and complete list
of all Subsidiaries of the Company as of July 28, 2003;
(e) attached hereto as Exhibit E is a true, correct and complete copy
of the Second Amended and Restated Senior Credit Agreement dated as of July
28, 2003; and
(f) the assets listed on Schedule 9.13, attached hereto as Exhibit B,
constitute all of the accounts receivable, inventory, equipment and other
fixed assets and registered copyrights, trademarks and patents owned, used,
or held in connection with the Foreign
-16-
Guarantors. The Foreign Guarantors have good and marketable title to each
asset and no asset is subject to any Lien, except as permitted by the Note
Purchase Agreements.
Section 4. Conditions to Effectiveness of This Third Amendment.
This Third Amendment shall not become effective until, and shall become
effective when:
(a) executed counterparts of this Third Amendment, duly executed by
the Company and the holders of 100% in aggregate principal amount of
outstanding Notes, shall have been delivered to the Noteholders;
(b) Allonges, in the form of Exhibit C attached hereto, shall have
been duly executed by the Company for each of the outstanding Notes and
delivered to the appropriate Noteholders;
(c) (i) Guaranties in form and substance satisfactory to the
Noteholders, and (ii) a Security Agreement in form and substance
satisfactory to the Noteholders, shall have been duly executed in favor of
the Noteholders by each of the Domestic Subsidiaries and Foreign
Subsidiaries executing and delivering Guaranties and granting security
interests in their assets to the Senior Lenders under the Senior Credit
Agreement;
(d) the Noteholders shall have received a fully executed copy of the
Second Amended and Restated Senior Credit Agreement, in form and substance
satisfactory to them;
(e) the representations and warranties of the Company set forth in
Section 3 hereof shall be true and correct on and with respect to the
effective date hereof and the execution and delivery by the Company of this
Third Amendment shall constitute the certification by the Company of the
same;
(f) fees and expenses of counsel to the Noteholders relating to this
Third Amendment to Note Purchase Agreements will be paid in full; and
(g) the Noteholders shall have received such evidence, including wire
transfer numbers and other information, as they shall require to confirm
that prior to the effectiveness of this Third Amendment the Company wired
to the Noteholders cash amounts aggregating not less than $1,000,000 for
application to the interest payment due on the Notes on April 30, 2003.
Upon satisfaction of all of the foregoing, this Third Amendment shall become
effective, and the amendments to the Note Purchase Agreements provided for
herein shall be deemed effective as of April 30, 2003 and the Existing Defaults
waived.
-17-
Section 5. Release; No Discharge.
As additional consideration for the Noteholders' entering into this Third
Amendment, the Company hereby fully and unconditionally releases and forever
discharges the Noteholders, their agents, employers, trustees, directors,
officers, attorneys, auditors, financial advisors, affiliates, subsidiaries,
successors and assigns and all persons, firms, corporations and organizations
acting on any of their behalves (the "Released Parties") of and from any and all
claims, liabilities, demands, obligations, damages, losses, actions and causes
of action whatsoever which the Company may now have or claim to have against any
Noteholder or any other Released Parties, whether presently known or unknown and
of any nature and extent whatsoever, including, without limitation, on account
of or in any way affecting, concerning or arising out of or founded upon this
Third Amendment or the Note Documents, including but not limited to all such
loss or damage of any kind heretofore sustained or that may arise as a
consequence of the dealings between the parties up to and including the date
hereof, including but not limited to, the administration or enforcement of the
Notes, the Note Purchase Agreements or any of the other Note Documents. The
obligations of the Company under the Note Documents and this Third Amendment
shall be absolute and unconditional and shall remain in full force and effect
without regard to, and shall not be released, discharged or in any way affected
by:
(a) any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of this Third Amendment, any Note Documents
Document, any document relating to or evidencing any of the Noteholders'
Liens or applicable Law, including, without limitation, any waiver,
consent, extension, indulgence or other action or inaction in respect
thereof; or
(b) any other act or thing or omission or delay to do any other act or
thing which could operate as or be deemed to be a discharge of the Company
as a matter of law, other than payment in full of all obligations evidenced
by the Notes, including but not limited to all obligations under the Note
Purchase Agreements, the Notes, the other Note Documents and this Third
Amendment.
Section 6. Entire Agreement.
The Company acknowledges that there are no other agreements,
representations, either oral or written, expressed or implied, not embodied in
this Third Amendment and the other Note Documents, which, together, represent a
complete integration of all prior and contemporaneous agreements and
understandings of the Company and the Noteholders. No party shall be bound by
any oral agreement, and no rights or liabilities, either expressed or implied,
shall arise on the part of any party, or any third party, until and unless the
agreement on any given issue has been reduced to a written agreement executed in
accordance with the provisions of Section 18 of the Note Purchase Agreements. No
commitment on the part of the Noteholders exists to modify the Note Documents in
any respect, and the Noteholders hereby specifically confirm that they make no
such commitment and specifically advise that no action should be taken by the
Company based upon any understanding that any such a commitment exists or on any
expectation that any such commitment will be made in the future.
-18-
Section 7. The Company Remains in Control.
The Company acknowledges that it remains in control of its business and
affairs and determines the business plan for, and employment, management and
operating directions and decisions for its or his business and affairs.
Section 8. Miscellaneous.
This Third Amendment shall be construed in connection with and as part of
the Note Purchase Agreements, and except as modified and expressly amended by
this amendment, all terms, conditions and covenants contained in the Note
Purchase Agreements, the Notes, the Warrants and the other Note Documents are
hereby ratified and confirmed and shall be and remain in full force and effect.
The obligations of the Company under the Note Purchase Agreements, the Notes,
the Warrants and the other Note Documents shall not be released, discharged or
in any way affected by (a) any exercise or nonexercise of any right, remedy,
power or privilege under or in respect of the Note Purchase Agreements, the
Notes, the Warrants or the other Note Documents or applicable law, including,
without limitation, any waiver, consent, extension, indulgence or other action
or inaction in respect thereof; or (b) any other act or thing or omission or
delay to do any other act or thing which could operate as or be deemed to be a
discharge of the Company as a matter of law, other than payment in full of all
obligations under the Note Purchase Agreements and the Notes and performance
under the Warrants and the other Note Documents.
Any and all notices, requests, certificates and other instruments executed
and delivered after the execution and delivery of this amendment may refer to
the Note Purchase Agreements without making specific reference to this
amendment, but nevertheless all such references shall be deemed to include this
amendment unless the context otherwise requires.
This Third Amendment may be executed in any number of counterparts, each
executed counterpart constituting an original, but all together only one
agreement.
This Third Amendment SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE State OF
Washington, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH State THAT
WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH
State.
Oral AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER Washington
Law.
-19-
In Witness Whereof, the Company and the Noteholders have caused this Third
Amendment to be executed, all as of the day and year first above written.
The Company:
Flow International Corporation
By
---------------------------------------
Its
------------------------------------
-20-
The Noteholders:
Xxxx Xxxxxxx Life Insurance Company
By
---------------------------------------
Its
------------------------------------
Xxxx Xxxxxxx Variable Life Insurance
Company
By
---------------------------------------
Its
-----------------------------------
Signature 4 Limited
By Xxxx Xxxxxxx Life Insurance Company, as
Portfolio Adviser
By
---------------------------------------
Its
------------------------------------
Signature 5 L.P.
By Xxxx Xxxxxxx Life Insurance Company, as
Portfolio Adviser
By
---------------------------------------
Its
------------------------------------
-21-
Consent of Guarantors
The terms of the foregoing Third Amendment to Note Purchase Agreements of
Flow International Corporation are hereby agreed to as of the date first written
above by the following Guarantors.
Avure Technologies, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
CIS ACQUISITION CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
FLOW WATERJET FLORIDA CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attachments
Exhibit A - Form of Restructure Agreement
Exhibit B - Form of Schedule 9.13 to Note Purchase Agreement [to mirror Schedule
5.19 to Senior Credit Agreement]
Exhibit C - Form of Allonge
Exhibit D - List of Subsidiaries
Exhibit E - Second Amended and Restated Credit Agreement
EXHIBIT A
(to Third Amendment to Note Purchase Agreements)
RESTRUCTURE AGREEMENT
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
**
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**CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT**
Consent of Guarantors
Each undersigned guarantor (each a "Guarantor") is a guarantor of the
indebtedness, liabilities and obligations of Flow International Corporation, a
Washington corporation (the "Company"), under those certain Note Purchase
Agreements dated as of April 30, 2001 (as amended from time to time, the "Note
Purchase Agreements") referred to in the within and foregoing Restructure
Agreement dated as of July , 2003 (the "Restructure Agreement") and the
----
other Note Documents described in the Note Purchase Agreements. Each Guarantor
hereby acknowledges that it has received a copy of the Restructure Agreement and
hereby consents to its contents and the other Note Documents described therein
(notwithstanding that such consent is not required). Each Guarantor hereby
confirms that its guarantee of the obligations of the Company remains in full
force and effect, and that the obligations of the Company under the Note
Purchase Agreements, the Notes and the other Note Documents shall include the
obligations of the Company under the Restructure Agreement. All capitalized
terms not defined herein have the meanings given in the Note Purchase
Agreements.
Avure Technologies, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Cis Acquisition Corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Flow Waterjet Florida Corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
EXHIBIT B
(to Third Amendment to Note Purchase Agreements)
Schedule 9.13
FOREIGN GUARANTOR ASSETS
(By Company)
EXHIBIT C
(to Third Amendment to Note Purchase Agreements)
Form of Allonge
EXHIBIT D
(to Third Amendment to Note Purchase Agreements)
SUBSIDIARIES
State or other Jurisdiction of
Subsidiary Incorporation or Organization
---------- ------------------------------
Avure Technologies AB Sweden
Avure Technologies Incorporated Washington
CEM-FLOW France
Flow Access BVBA Belgium
CIS Acquisition Corporation Michigan
Flow Asia Corporation Taiwan
Flow Asia International Corporation Mauritius
Flow Autoclave Systems, Inc. Delaware
Flow Automation Systems Corporation Ontario
Flow China China
Flow Europe, GmbH Germany
Foracon Europe Manufacturing GmbH & XX.XX Germany
Flow Holdings BVBA Belgium
Flow Holdings GmbH (SAGL) Limited Liability Company Switzerland
Flow Holdings FPS AB Sweden
Flow Iberica, S.R.L. Spain
Flow Italia, S.R.L. Italy
Flow Japan Corporation Japan
Flow Korea Korea
Flow Pressure Systems Vasteras AB Sweden
Flow Latino Brazil, South America
Flow Surface Prep/Europe, SAGL Switzerland
Flow U.K., Ltd. England
Flow Waterjet Florida Corporation Florida
Robotic Simulations Limited United Kingdom
EXHIBIT E
(to Third Amendment to Note Purchase Agreements)
Form of Second Amended and Restated Credit Agreement
